Investing is one part of personal finance that the earlier you begin doing it, the better your chances of getting huge returns. This is the reason more and more people are looking for various investment opportunities and products to take advantage of and grow their personal wealth.
While it is true that with multiple sources of income people can also amass decent wealth, it remains a fact that most of the world’s richest made their money through strategic investments.
Experienced investors invest in so many products including precious metals, stocks, bonds, mutual funds, ETFs, options, bank products, annuities, and so on.
Some investors also invest in high-growth start-ups or companies for an equity stake. People who do this with their own money are called angel investors, while firms that do this with a dedicated fund are called venture capitalists (VCs). Click here to learn more about VCs.
Of all the different options we have just mentioned, investing in precious metals is perhaps the safest which makes it the most rewarding in the long run. What is even great about it is that having expert-level knowledge is not a prerequisite for this type of investment.
A beginner investor who at least understands the basics of investing would not have a problem exploring and benefiting from this option. However, you should know that although it is generally considered safer than others, it is not without risks. Therefore, before diving in, it is important that you understand the risks involved and place them side by side with your risk tolerance level to decide if it is something you really want to do.
In this article, we will look at what precious metals are, a few ways you can invest in them, and why you may want to consider having them in your portfolio.
What are Precious Metals?
These are rare metals, assets, or commodities that occur naturally. Due to several factors like their scarcity, important financial history, and high demand in various industrial processes, they have a high economic value. The most popular and important precious metals in the financial market today are gold, silver, palladium, and platinum. Also, chemically, compared to other known elements, they are the least reactive.
We mentioned that these assets have an important financial history. Of the four, gold and silver have the most impressive and significant history. In the United States, for example, under the bimetallic standard of 1792, they were both recognized as legal tenders.
However, this system was later abandoned in 1867 for paper money due to several factors. Fast forward to the present day, despite not backing any currency around the world, both these metals remain very much relevant thanks to their inherent value.
How to Invest in Precious Metals
There are several ways by which one can invest in these commodities. Let us look at a few of them:
Investors can opt to own these assets physically by buying bullion. When you buy bullion, you are basically buying the assets in coin or bar form. Many experienced investors prefer this option to other methods of investing in precious metals.
Why? Because it is a lot more reassuring to have the assets in hand, knowing that market movements have no effect on their price value. The same can’t be said for other options like buying stocks of companies that mine these metals.
If you will be buying these assets physically, you can choose to store them at your residence or someplace else where they will be safe, like a safety deposit box at your bank. You also have the option of opening a self-directed IRA and saving them there.
This option allows you some tax advantages that you may find extremely useful. If you will be going with the self-directed IRA option, ensure you buy only precious metals that meet the Internal Revenue Service’s (IRS) standards or specifications. For example, gold must have 99.5% purity, silver must be 99.9% pure, palladium 99.95%, and platinum 99.95% as well.
It is important to vet any precious metals company you are considering buying from as scams are steadily on the rise. Read reviews online, ask lots of questions, and make sure the company is recognized in the industry before working with them to avoid being ripped off. You can visit the Cornerstone Bullion review to get started.
You will not get much liquidity buying bullion. But buying stocks from companies that are into mining and exploration of precious metals offers you much more in terms of liquidity. Thanks to various stock trading apps like Robinhood, investors can sell and buy stocks with just a few clicks.
In this option, the value of the stocks you own is directly influenced by how well the issuing company is doing and not necessarily how well the asset is performing. So, this means that you are exposed to risks from factors like poor management, bankruptcy, economic crisis, etc. On the other side if the company does well, stock prices rise, making your investment profitable.
With this option, investors can easily grow their capital compared to physically buying the assets. However, it comes with even greater risks.
Why Invest in Precious Metals?
There are many reasons why even experienced investors invest in precious metals. One is the fact that they are almost immune to the effects of financial and economic crises. Historically, compared to other assets, they perform great during such tumultuous times.
As a matter of fact, their values often increase during financial crises. It is because of this that experts advise that investment portfolios be diversified using these assets. Head on to https://money.usnews.com/investing/investing-101/articles/why-diversification-is-important-in-investing to learn more about the benefits of portfolio diversification.
Just as they will not be affected by economic upheavals, inflation has no effect on their values as well. This is why many investors use precious metals like gold to protect their wealth from inflation. Unlike paper money that loses value during inflation, these assets remain intact.
When it comes to diversifying portfolios with precious metals, experts advise that they take no more than 20% of the entire portfolio. This is because individuals may be tempted to go all out seeing how safe these assets are. But experts know that spreading risks is the best way to invest profitably. So, it is never safe to put all your eggs in one basket.